The failure of the Bank of England over Libor, the failure of the FSA over the mis-selling scandals (pensions and then Payment Protection Insurance), the failure of the police over phone-hacking, the failure of OFWAT to ensure the water companies invested to upgrade water supply and sewerage schemes, the failure of any regulator to bear down on excessive and unjustifiable bonuses, and now the failure of OFGEM to detect and deal with price-fixing by energy traders, the list goes on and on.
Why are Britain’s regulators so inept and feeble? One answer of course is that they were set up by Blair-Brown to be just that: ‘light touch’ regulators which everyone in the trade knew meant the feather-lightest touch you can possibly get away with.
Yesterday OFGEM announced it was taking various initiatives to improve transparency in the notoriously opaqe energy markets, but refused to implement the key recommendation of its own consultants from the accounting firm BDO who had proposed that OFGEM should “require the reporting of trading function results” by energy companies.
Yet revealing the trading arm activity of these companies is absolutely key to understanding what is really going on in energy markets, notably the misleading accounts given of their generation costs and under-reporting of profitability. Obviously heavy lobbying by the companies caused the regulator to back off, and not for the first time. OFGEM was warned almost a year ago that there were serious shortcomings in energy trading, but it seems did nothing.
So how should industrial or financial regulation be made to bite harder? At present regulators are normally selected by senior civil servants and then rubber-stamped by Ministers. What is needed instead is that regulators are proposed by the Executive (government and officials), but then their position has to be ratified by Parliament at a public hearing before the relevant select committee.
If there are significant misgivings or doubts, let alone outright hostility, expressed by a majority of the committee, the Executive would then be required to come up with another name and the process repeated till agreement was reached. Once the regulator was in post, they should be routinely recalled for cross-examination of their record and if they did not pass muster or serious doubts prevailed, a report could then be passed to the chamber that ‘the House does not have confidence in this regulator, and that motion would be debated and voted on. If a majority of the House supported the motion, the regulator would lose his job and have to be replaced.
